Welcome to the Capital Note, a newsletter about business, finance, and economics. On the menu today: Facebook beats regulators in court, House Republicans release a tech-regulation framework, commodities traders cash out, and Ben Thompson explains the difficult of defining markets. To sign up for the Capital Note, follow this link.
Facebook’s Antitrust Victory
Facebook landed a major victory in federal court yesterday when a judge dismissed antitrust suits filed by the Federal Trade Commission along with 46 state attorneys general. U.S. District Judge James Boasberg granted Facebook’s motion to dismiss, ruling that the FTC had not provided enough evidence of monopoly power on the part of the social-media giant:
The FTC has failed to plead enough facts to plausibly establish a necessary element of all of its Section 2 claims — namely, that Facebook has monopoly power in the market for Personal Social Networking (PSN) Services. The Complaint contains nothing on that score save the naked allegation that the company has had and still has a “dominant share of th[at] market (in excess of 60%).”
In other words, a large market share is not evidence of monopoly power. Boasberg also noted that the FTC failed to provide a methodology for its 60 percent figure:
In this unusual context, the FTC’s inability to offer any indication of the metric(s) or method(s) it used to calculate Facebook’s market share renders its vague “60%-plus” assertion too speculative and conclusory to go forward. Because this defect could conceivably be overcome by re-pleading, however, the Court will dismiss only the Complaint, not the case, and will do so without prejudice to allow Plaintiff to file an amended Complaint.
In the next month, the FTC will get a second chance to provide evidence for its market-share assertion. However, even if it convinces the court, “its challenge to Facebook’s policy of refusing interoperability permissions with competing apps fails to state a claim for injunctive relief,” because “there is nothing unlawful about having such a policy in general.”
A House GOP Antitrust Framework
The day before the Facebook ruling, House minority leader Kevin McCarthy sent a letter to House Republicans outlining a framework for tech regulation. It focuses on three pillars:
Accountability: Our framework would rein in Big Tech and end their abusive practices, including by changing the law so that Americans can challenge Big Tech directly for their infringement of public speech rights. This effort starts by taking away the liability shield Big Tech has hidden behind for far too long. Section 230 of the Communications Decency Act would be changed to limit liability protections for moderation of speech that is not protected by the First Amendment and would preclude Big Tech from discriminating against Americans based on their political affiliation. We would also require regular reauthorization of Section 230 so Congress may update regulations of the constantly-evolving internet landscape.
Transparency: Our framework would empower Americans by ending Big Tech’s ability to hide behind vague terms of service that have not constrained their conduct in any meaningful way. We will do so by mandating that any Big Tech content moderation decisions or censorship must be listed, with specificity, on a publicly available website. In addition, by requiring Big Tech to implement and maintain a reasonable user-friendly appeals process, our plan will empower conservatives and others whose speech rights have been infringed to challenge Big Tech’s attacks.
Strengthening Anti-Trust Review: Our framework also recognizes that the status quo and bureaucratic delays are not acceptable when it comes to bringing long-overdue antitrust scrutiny to Big Tech. We will provide an expedited court process with direct appeal to the Supreme Court and empower state attorneys general to help lead the charge against the tech giants to break them up. We will also reform the administrative state and remove impediments that delay taking action on Big Tech power.
McCarthy’s letter indicates that the House GOP will focus more on content-moderation issues than on market competition, likely cutting into Republican support for the ambitious antitrust measures introduced by the House Judiciary Committee earlier this month.
But the framework also makes it all but inevitable that some form antitrust legislation will come out of the House before the midterm elections.
Around the Web
Commodities are back, and from pension funds to physical commodity traders, everyone is making money. The question now is whether it’s a temporary snapback from the pandemic or signals a longer-term shift in the structure of the global economy . . .
For the first time since the pre-crisis years before 2008, the commodities boom means central banks are fretting about inflation. The rally will have a political impact, too. With oil back at $75 a barrel, Saudi Arabia and Russia are back in the driving seat of the global energy market — a remarkable come back from negative prices just over a year ago. The boom is also an unwelcome development for policymakers tackling the climate crisis: rising commodities prices will make the shift more expensive.
Betting against the price of US government bonds was a winning play earlier this year, with hedge funds and other investors raking in sizeable gains as the economic recovery gathered pace. But recent gyrations and the spectre of a policy pivot from the Federal Reserve have heaped significant doubt on whether investors should remain in the trade.
Several big-name hedge fund were caught up in the maelstrom, including Andrew Law’s Caxton Associates and Chris Rokos’s Rokos Capital. The rationale for the reflation trade had centred around expectations that the accelerating US vaccination programme and removal of Covid-19 lockdown measures would usher in a period of high growth and inflation as business activity began to normalise.
Late last year, tech blogger Ben Thompson explained the challenge the FTC faced in the Facebook case. His points proved prescient:
The complaint goes to great pains to narrowly define the relevant market as “Personal Social Networking in the United States”; personal social networking is further defined as:
- Being “built on a social graph that maps the connections between users and their friends, family, and other personal connections”.
- Including “features that many users regularly employ to interact with personal connections and share their personal experiences in a shared social space, including in a one-to-many “broadcast” format”.
- Including “features that allow users to find and connect with other users.”
The complaint further clarifies that this definition does not include “specialized social networking services” like LinkedIn or Strava, online video or audio services like YouTube or Spotify, or mobile messaging services. This last one is particularly strange because it seems to exonerate the WhatsApp acquisition: it seems like a stretch to complain that Facebook acted anticompetitively to acquire a service that was explicitly not in the market they monopolized because it might one day enter that market.
The reality, of course, is that this definition is ridiculously narrow; I can imagine an argument that says that Facebook competes in a different market than, say, Google search, even though both offer digital advertising. I have a much more difficult time buying the argument that Facebook is in a different market than LinkedIn, much less YouTube or Snapchat or TikTok, all of whom monetize via targeted display advertising.
Thompson argues that the FTC’s definition of Facebook’s market is arbitrarily narrow:
The FTC, in my estimation, is making the same mistake of so narrowly defining Facebook’s market that they are ignoring what is arguably Facebook’s most dangerous long-term competitor; TikTok wasn’t even mentioned once in the entire complaint.
In short, the FTC has to successfully argue that Facebook competes in a market that is limited to products that look and work like Facebook, unless a company outside of that definition (WhatsApp) was acquired by Facebook, in which case it can be assumed that that company would have become like Facebook absent acquisition, while no other company would have. It’s not going to be easy, no matter how many anti-competitive emails are unearthed.
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